Important Pages

What’s an Example Calculation for the IRS 72t Distribution Rule?

So you’ve decided it’s time to retire early. The decision might have been sparked by a variety of financial scenarios, but at this point, you’ve already made the choice and need the right information.

Great, we’re here to walk you through an example calculation on this page, for the IRS’ section 72t rule, which allows for penalty-free distribution of a retirement account, when certain conditions are met.

First off, there are three different methods for executing a 72t distribution. #1 is the Minimum Distribution Method, #2 is the Amortization Method, and #3 is the Annuitization Method. We have a comparison chart on our main 72t retirement guide of all three methods, so in this article we’ll simply choose the most basic method (which is the Minimum Distribution Method).

For our calculation purposes, let’s say you’re a 50 year old, traditional IRA owner. You have an account balance of $100,000, an 8% annualized rate of return, an interest rate of 1.4% and we’ve pulled the divisor from the IRS mortality table (which is what the Minimum Distribution Method is determined by).

By the way, with this method, payments will vary each year, allowing the owner to take out the least amount of income possible (as you’ll notice is the case with the example dollar figures below).

Year 1’s distribution would be $2924, while year 2 would be $3148, year 3 $3400, year 4 $3661, and year 5 $3940, which would total $17073. Again, these numbers are based on our hypothetical situation, utilizing the Minimum Distribution Method.

It’s always most beneficial to speak with a financial professional, to work out your unique situation. Running the numbers with your own account, with your personal financial goals in mind is the biggest key to finding the success for you and your family.

Again, if you’d like to compare the other IRS-approved distribution methods, or would simply like more information on the early retirement, 72t distribution process, visit our main guide by clicking this link.

About Paul West

Paul West is a financial advisor and consultant. He appreciates sharing his knowledge and expertise through articles, comparison tables and useful videos.
View all posts by Paul West →